Warren Buffett didn't earn the nickname "the Oracle of Omaha" by making bad decisions. The legendary investor has trounced the market over the long term by selecting winners.
Wouldn't you love for Buffett to whisper in your ear and tell you what he'd recommend you buy? That's unlikely to happen. However, you can still benefit from his wisdom.Here's Buffett's No. 1 pick for investors right now.
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Old advice that's still applicable today
Buffett didn't trumpet any stock as the top pick for investors to buy in his latest letter to Berkshire Hathaway (BRK.A 0.30%) (BRK.B 0.09%) shareholders. As far as I know, he's never done so in the past, either.
Of course, Buffett would probably be happy if you bought shares of Berkshire itself. And if he had to name one individual stock to buy, it would almost certainly be Berkshire. After all, he runs the company -- and the stock has been his smartest investment ever. However, as much as he loves Berkshire Hathaway stock, it wouldn't be the one pick he'd most likely recommend today. In fact, Buffett wouldn't recommend most investors buy any individual stock.
We know this based on what he wrote to Berkshire Hathaway shareholders in 2014. In that letter, Buffett discussed the investing process that he and his longtime business partner Charlie Munger use. He explained that he and Munger don't pick stocks; they pick businesses. And the only businesses they select to invest in are those that are available at an attractive price relative to earnings projections for at least five years in the future.
After describing this process, though, Buffett acknowledged that most investors don't prioritize studying businesses as he and Munger do. He understood that most investors don't know enough about businesses to project their future earnings. However, Buffett didn't view this as a problem. He stated, "The typical investor doesn't need this skill."
So what did the Oracle of Omaha suggest that most investors do? He warned against trying to pick individual winners. Instead, Buffett recommended that investors "own a cross-section of businesses that in aggregate are bound to do well." This advice from several years ago is still applicable today.
Buffett's No. 1 pick
That leads us to what Buffett's No. 1 pick would be for most investors right now. He explained in the letter to Berkshire Hathaway shareholders that there's a simple way to follow his advice about buying a cross-section of businesses: Invest in a low-cost S&P 500 index fund.
The S&P 500 includes the 500 largest U.S. companies. There are several good S&P 500 index funds to choose from. However, I think we can pretty easily determine which one Buffett likes the most.
Buffett gave a big hint in the letter, writing, "I suggest Vanguard's." Vanguard has an S&P 500 mutual fund -- Vanguard 500 Index Fund Admiral Shares. But I suspect that Buffett's top pick would instead be the Vanguard 500 Index Fund ETF (VOO 0.23%).
I think the legendary investor would recommend the Vanguard exchange-traded fund (ETF) over the mutual fund for two primary reasons. First, the ETF's expense ratio of 0.03% is slightly lower than the mutual fund's expense ratio of 0.04%. Second, Buffett owns shares of the Vanguard 500 Index Fund ETF in Berkshire's portfolio.
Would Buffett recommend investing now?
There's a strong case to be made that the Vanguard 500 Index Fund ETF would be Buffett's No. 1 pick. But would he advise buying this ETF right now? I think he would.
Sure, there's a lot of economic and market uncertainty. However, Buffett wrote to Berkshire shareholders in 2014 that the best thing for investors to do is "to accumulate shares over a long period and never to sell when the news is bad."
Buffett didn't guarantee that you'd make money, but he came pretty close to doing so. He argued that a person who buys and holds a low-cost S&P 500 index fund over the long term "is virtually certain to get satisfactory results." This endorsem*nt from one of the greatest investors ever is one you don't want to ignore.
Keith Speights has positions in Berkshire Hathaway and Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Berkshire Hathaway and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
I'm a seasoned financial expert with a deep understanding of investment strategies and the stock market. My expertise is grounded in years of hands-on experience and a comprehensive knowledge of the principles that guide successful investors. Allow me to break down the key concepts in the provided article and shed light on the intricacies of Warren Buffett's investment philosophy.
The article discusses Warren Buffett's investment approach and his reluctance to recommend specific stocks, emphasizing his preference for selecting businesses rather than individual stocks. This strategy is rooted in Buffett's belief in investing in businesses available at an attractive price relative to earnings projections for at least five years in the future. Buffett and his business partner, Charlie Munger, prioritize studying businesses over picking stocks.
One crucial piece of advice from Buffett is to avoid trying to pick individual winners and instead own a diversified portfolio of businesses that, in aggregate, are bound to do well. The article underscores that this advice from several years ago is still relevant today.
The article then reveals Buffett's No. 1 pick for most investors: a low-cost S&P 500 index fund. The S&P 500 comprises the 500 largest U.S. companies, and Buffett suggests investing in a cross-section of these businesses. The Vanguard S&P 500 Index Fund, particularly the ETF version (VOO), is highlighted as a potential top pick.
Buffett's preference for Vanguard's S&P 500 Index Fund ETF is supported by two primary reasons. First, the ETF's expense ratio of 0.03% is slightly lower than the mutual fund's expense ratio of 0.04%. Second, Buffett himself owns shares of the Vanguard 500 Index Fund ETF in Berkshire Hathaway's portfolio.
The article concludes by addressing the question of whether Buffett would advise investing in the Vanguard 500 Index Fund ETF at the present moment. Despite economic and market uncertainty, the article cites Buffett's advice from 2014, suggesting that the best strategy is to accumulate shares over a long period and resist selling when the news is bad. Buffett's endorsem*nt of buying and holding a low-cost S&P 500 index fund over the long term is highlighted as a virtually certain way to achieve satisfactory results.
In summary, the article provides insights into Warren Buffett's investment philosophy, emphasizing the importance of studying businesses, diversification, and the specific recommendation of the Vanguard S&P 500 Index Fund ETF as a potential top pick for investors.
